FATCA: Charter Challenge?

The federal government has now solved a major problem for Canada’s banks by entering into an intergovernmental agreement concerning FATCA with the United States. The details about the privacy implications of FATCA can be found in previous posts here, here and here. With this agreement, the “end game” of FATCA compliance for Canada appears close at hand and there’s an important privacy lesson in it for Canadians.

The core issue for me was how could Canadian banks comply with Canadian privacy law and avoid the punishment meted out to their US operations for non-compliance with FATCA? The federal government’s response – similar to that of other countries – was to negotiate an intergovernmental agreement. Our government will collect and then provide the necessary information. This would be accomplished through information exchange arrangements allowed under existing agreements such as the Canada-U.S. tax treaty. This solved the problem for banks but really did little for the privacy concerns of individual Canadians.

The Department of Finance has issued a FAQ, which you can find here and there are two aspects to note. The first is the list of benefits, reproduced below. I’ve edited it slightly but you can see the full list in the Finance FAQ.

“• Canadian financial institutions will not report any information directly to the IRS. Rather, accountholder information on U.S. residents and U.S. citizens will be reported to the Canada Revenue Agency (CRA).

• The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the IGA.

• The FATCA requirement that Canadian financial institutions be required to close accounts or refuse to offer services to clients in certain circumstances will be eliminated.

• A number of accounts will be exempt from FATCA reporting, including Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, and Tax-Free Savings Accounts.

• Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt from reporting.

• The IRS will provide the CRA with enhanced and increased information on certain accounts of Canadian residents held at U.S. financial institutions.”

One has to admit the exemption of a number of types of accounts and small institutions is privacy-friendly. However, also note the agreement now feeds CRA with American data on Canadian taxpayers and their American bank accounts. A cynical reader might call this taking advantage of the situation.You can also contact experts as they can help with debts to achieve your finance goals and debt recovery.

The second aspect concerns the privacy of Canadians who are also American citizens (whether they know it or not):

“One key concern was that the reporting requirements would force financial institutions to report accountholder information directly to the IRS, which would raise concerns about consistency with Canadian privacy laws…The exchange of tax information between Canada and the U.S., including on an automatic basis, is already a longstanding practice, is authorized under Article XXVII of the Canada-U.S. tax treaty, and includes safeguards with respect to the use of the exchanged information. The information on U.S. accountholders obtained by the CRA will be exchanged with the IRS through these existing provisions, an approach that is consistent with Canadian privacy laws.”

Note the language “consistent with Canadian privacy laws”. Since the financial institutions will likely be “required by law” to provide such information, they may do so without the subject individual’s consent pursuant to exceptions found in s. 7 of PIPEDA. The government may then disclose it to the American authorities pursuant to exceptions found in the Privacy Act.

The privacy lesson of this story? Public sector “privacy statutes” in Canada do little to impede governments with respect to with what they want to do with personal information. People often think they have privacy “rights” but really do not unless it is a Charter matter. The Finance FAQ does not speak to the “privacy” of Canadians but rather consistency with Canadian privacy laws. As those with dual citizenship will find out, “consistency” with Canadian privacy laws does not equate to protection of privacy interests. The language in the FAQ is technically correct: there is no protection of privacy here but rather non-violation of privacy legislation.

I have not seen the actual text of the agreement but there has been no suggestion in the press that the deal is limited to U.S. residents. If one agrees with Peter Hogg’s assessment (see FACTA Revisited), this may pose an inconsistency with the Charter of Rights and Freedoms.  This begs the next question. Will someone challenge this agreement using a Charter argument? If yes, FATCA may remain in the public eye a little bit longer.